• Wed. Feb 28th, 2024

Five lessons from AI traders

Five lessons from AI traders

The capabilities of artificial intelligence (AI) have taken the world by storm, and the trading industry is no exception, especially in the world of cryptocurrency.

According to a PWC report, by 2030, AI could contribute $15.7 billion to the global economy. Meanwhile, research by Global Data shows that revenue from the crypto industry will reach $1.1 trillion in the same year.

Without a doubt, merging these two industries would be groundbreaking, and many investors already have many AI tools at their disposal to help them execute their crypto trades.

Here are five lessons that AI traders shared with us.

Crypto trading is a “limited learning”.

Daniel Guan, CIA Quant AIA decentralized asset management platform that offers access to AI-enabled trading strategies told Technopedia that one of the key lessons for crypto traders to keep in mind is that cryptocurrency trading is a “limited learning”.

According to Guan, what AI essentially does when used for crypto trading purposes is try to understand how the token moves and how a particular user can benefit from it.

Like all token prices in crypto and financial instruments that have changed, prices in the traditional world, and all kinds of macroeconomic news, machine learning is learning what it needs to know. In that sense, when AI learns this content, it creates models that try to predict price movements and then trades.

This essentially means that if a crypto trader wants to be successful in their job, they must first understand how the cryptocurrency they are trading moves, what are some of the key factors that affect its price, and how the cryptocurrency will react to upcoming news.

CEO and co-founder of Carlisle O (last name redacted due to privacy concerns). greatHe added that large language models (LLMs) like ChatGPT can be great tools to help investors build a basic understanding of things they may not be familiar with.

The most obvious way is to use (large language samples) to conduct basic research. For example, if you want to trade a particular vertical and you’re not that familiar with this vertical, big language models are a shortcut to getting 80/20 or something else that you’re new to.

AI helps spot trends

One of the biggest benefits of using AI when trading crypto is the technology’s ability to analyze large amounts of data in a very short amount of time. This expertise helps AI crypto traders make decisions in cryptocurrency trading, CEO Vikas Kaushin TechAheadtold Technopedia.

AI helps detect patterns and trends in the market that human traders may overlook due to cognitive biases. This provides more informed judgments supported by data, which ultimately leads to better results from trading.

Carlisle added that most of the AI ​​tools used when trading crypto are specifically tuned to focus on market signals, whether they’re analyzing Twitter data, looking at the semantics of what’s going on in the market, or analyzing heat maps of sentiment.

Crypto trading is 24/7

Unlike traditional markets, cryptocurrencies are traded 24/7, which can be one of their trickiest aspects. No trader can be awake 24 hours a day, seven days a week, which means many people are likely to miss out on big buying or selling opportunities during unavailable hours.

That’s why Kvants AI’s Guan mentioned that they developed an AI-assisted tool that helps investors monitor the crypto market 24/7.

We actually have a license in Singapore that allows us to manage assets for our smaller clients. In that sense, clients’ assets are integrated in finance, so such an aggregated account is managed by AI strategies that can react very quickly to the market, like a custody service.

Traders must react quickly to market trends

It is a universally accepted truth that cryptocurrency markets are highly volatile, which means that crypto traders must be quick when it comes to making important decisions.

Revealing his past experience in traditional finance, if crypto traders rely on some traditional financial strategies, their judgment may not be reactive enough to the volatile crypto market.

AI and machine learning are well suited to this world as they can provide very quick responses and an ideal learning environment to work with. In that sense, whenever something new happens in the price of a cryptocurrency, traders can always learn something and try to react to it.

Carlisle adds that large language models can be useful here.

“Of course, you have to take into account the expected level of error, but effectively, you can think of it as being enthusiastic quickly.”

Risk tolerance is very important

AI’s ability to quickly analyze large data sets has another major drawback – the ability to detect and mitigate risks.

Tech Ahead’s Kaushin explained:

AI traders can implement specific risk management measures such as stop-loss mechanisms, portfolio diversification according to the investor’s risk tolerance, and real-time monitoring, effectively reducing the risk of adverse outcomes.

Moreover, Guan said risk management is a major issue in the financial industry and should be a top priority for crypto investors, especially due to the high volatility the industry experiences.

When a risk event occurs (in crypto trading), investors have to decide whether to hit this event or not. If they decide to respond, they should respond as quickly as possible. This is why AI has an advantage because it can make decisions based on information it has processed over the years.

bottom line

Overall, trading crypto with AI can be a fun experience, however, before they start incorporating AI into their crypto trading strategies, they should build a solid foundation in the fundamentals of crypto trading and AI-related technologies, Kaushin emphasized.

Carlisle added:

AI tools make humans more productive, regardless of their career path, whether they trade, build companies, or engage in any other type of activity.

AI and crypto technologies are constantly evolving, so it is very important for every trader to stay on top of your game and adjust your crypto trading strategy.

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